Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Are the management level administrative personnel of XXXXXXXXXX , entitled to the clergy residence deduction under paragraph 8(1)(c)?
Position: It is a question of fact whether XXXXXXXXXX is a religious order or if its management level administrative personnel are engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination.
Reasons: Not enough information to conclude that either the status test or the function test is met.
XXXXXXXXXX 2008-027013
L. Carruthers, CA
April 16, 2008
Dear XXXXXXXXXX :
Re: Clergy Residence Deduction
This is in reply to your email of March 4, 2008, in which you requested our opinion as to whether the management level administrative personnel (the "Personnel") of XXXXXXXXXX , (the "Centre") qualify for the clergy residence deduction pursuant to paragraph 8(1)(c) of the Income Tax Act (the "Act").
The facts in your letter appear to relate to a factual situation involving specific taxpayers. Written confirmation of the tax implications inherent in an actual proposed transaction is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in a manner set out in Information Circular 70-6R5 Advanced Income Tax Rulings. As stated in paragraph 22 of IC 70-6R5, written opinions are not advance tax rulings and, accordingly, are not binding on the Canada Revenue Agency (the "CRA"). The following comments are, therefore, of a general nature only.
Generally, to be eligible for the clergy residence deduction, an individual must be a member of the clergy, a member of a religious order, or a regular minister of a religious denomination (the "status test"). When one of these conditions is met, the individual must be in charge of, or ministering to, a diocese, parish or congregation, or engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination (the "function test").
The Status Test
As noted in paragraphs four through seven of Interpretation Bulletin IT-141R (Consolidated), Clergy Residence Deduction, in our view, a member of the clergy is a person set apart from the other members of the church or religious denomination as a spiritual leader, and a regular minister of a religious denomination must be authorized or empowered to perform spiritual duties, conduct religious services, administer sacraments and carry out similar religious functions. There is no evidence in your submission to support that the Personnel will be members of the clergy or regular ministers of a religious denomination and therefore, in our view, and as noted in your submission, the relevant status test to be resolved is whether the Personnel would be considered members of a religious order.
With respect to the definition of a religious order, the following explanation is provided in paragraph eight of IT-141R:
"The term "religious order" means a group of people bound by the same religious, moral and social regulations and discipline. A religious order may comprise all the members of an organization or only an identifiable group within that organization. ... Not every religious organization is a religious order. Whether or not an organization or a group of individuals within an organization is a religious order is a question of fact to be determined on a case-by-case basis. No factor predominates and each must be assigned its proper weight in the context of all the facts."
Judge Bowman has established in McGorman et al v The Queen (99 DTC 699 TCC), with respect to the meaning of a "religious order", six criteria to serve as guidelines in determining whether an organization (or a collectivity of persons therein) is a religious order, and the CRA has accepted these guidelines as indicated in paragraph nine of IT-141R. We have attempted to use these guidelines in our review of the information you supplied.
We assume that in your situation it is the organization (i.e., the Centre) that is seeking religious order status rather than a collectivity within the organization.
The 1st criteria - Purpose
The purpose of the organization should be primarily religious. It may have other objects within the overall context of that religious purpose such as education, the relief of poverty, or the alleviation of social ills and suffering. A religious order may have objects that go beyond preaching the gospel and prayer and meditation, and extend to works beneficial to humanity such as running hospitals or helping the poor and homeless.
Whether the purpose of any particular organization is primarily religious is a question of fact that may be determined only after a review of all pertinent documents and activities relating to the particular organization. We were not given sufficient evidence in your submission to conclude whether the Centre's primary purpose is religious.
The 2nd Criteria - Strict Moral and Spiritual Regime
The members must agree to, and in fact adhere to, a strict moral and spiritual regime of self-sacrifice and dedication to the goals of the organization to the detriment of their own material well-being.
We were not given any evidence indicating that the Personnel earn less than others who perform similar work in an organization of similar size in the public or private sector. Furthermore, the fact that the Centre does not appear to place any limitations on the earning of outside income is not conducive to the finding that there is a religious order.
The 3rd Criteria - Full-time and Long-term Service
The commitment of the members should be full-time and of a long-term nature. It is not essential that the commitment be for life but it is important that it not be short term, temporary or part-time.
We were not given any evidence indicating that the Personnel dedicate their working time exclusively, and on a long-term basis, to the pursuit of the objectives of the Centre.
The 4th Criteria - Spiritual and Moral Discipline
The spiritual and moral discipline and regime under which the members live must be markedly stricter than that to which the lay members of the church are expected to adhere.
In our view, subscribing to a statement of faith is not, in and of itself, indicative of living under a markedly stricter spiritual and moral discipline than that which the lay members of the organization are expected to adhere. We were not given any evidence indicating that there is a formalized code of conduct document for the Personnel or that such requirements are codified in their employment contracts. Furthermore, there was no evidence given that the Personnel may be dismissed if their work, lifestyle or behaviour are unsuitable.
The 5th Criteria - Strict Standards of Spiritual and Personal Suitability
The admission of members must be in accordance with strict standards of spiritual and personal suitability.
We were not given any evidence indicating that there is a probationary period, a documented assessment methodology or training required. Nothing in your submission indicates that any form of public worship or prayer is required. It appears that the Centre does not require regular attendance at a church or other place of worship. It seems that there is no formal religious training. In our review of your submission, we did not notice anything that would confirm that the Personnel could be recognized from the broader community as members of a religious order either by their conduct, dress or public statements.
The 6th Criteria - Sense of Communality
There should generally be a sense of communality.
Your submission contained no evidence to support a finding of a sense of communality amongst the Personnel or the Centre's members.
In conclusion, we are of the opinion that the Center is not a religious order. Accordingly, in our view, the Personnel would not meet the status test and thus would not be entitled to a deduction under paragraph 8(1)(c) of the Act.
The Function Test
Generally, if an employee met the status test and that employee is engaged exclusively in full-time administrative service by appointment of a religious order or a religious denomination, he or she would meet the function test. There are two elements to the function test and, for information purposes, we provide our concerns regarding satisfaction of each of these elements below.
The CRA has interpreted the phrase "administrative service" in paragraph 18 of IT-141R. An administrator must be engaged full-time in the functions of determining organizational policies and coordinating various activities of the organization at the management level in order to be meet that function test. Although it is not limited to the senior level of management of an organization, performance of specific staff functions do not qualify as administrative service.
We would accept that a chief executive officer could be considered engaged exclusively in full-time administrative service, however, it is a question of fact whether a manager of communication and fund development, or a program manager, determines organizational policies and coordinates various activities of an organization at the management level such that he or she meets the function test. From the brief job descriptions included in your submission, it appears that the management level administrative personnel as noted above will not determine organizational policies and coordinate various activities of the organization at the management level. Accordingly, in our view, the Personnel, other than possibly the chief executive officer, are not positions of full-time administrative service and, therefore, they would not meet the function test.
Furthermore, if an employee is engaged exclusively in full-time administrative service, in order for the function test to be met, such engagement must be by appointment of a religious order or a religious denomination. From the description included in your submission it appears that the Centre will appoint the Personnel and, as noted above, there is no evidence to support that the Centre is a religious order or denomination. Accordingly, in our view, regardless of whether activities of the Personnel qualify as full-time administrative service, such as possibly the chief executive officer, they would not be appointed by a religious order or denomination and, therefore, the function test would not be met.
Based on the above, in our view, the Personnel would not be eligible for the clergy residence deduction.
We trust that our comments will be of assistance.
Yours truly,
R.A. Albert, CA
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
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